Grandfathering Called Most Important Aspect of UHF Discount Draft
The question of how grandfathering will work under the FCC draft order on eliminating the UHF discount (see 1606270083) is the most important aspect of the proposed rule to broadcasters, broadcast and public interest attorneys told us. Since broadcasters don't know how or if the item will affect their combinations, it creates uncertainty, said Pillsbury Winthrop broadcast lawyer Scott Flick. If too many existing combinations are grandfathered, eliminating the UHF discount won't help limit broadcast consolidation, said Free Press Policy Director Matt Wood. “It will be a nice symbolic victory that doesn't accomplish anything.” The FCC didn't comment.
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Though most details of the draft order aren't known, several FCC officials have told us it largely resembles the 2013 NPRM on which it's based. A quirk of that NPRM was that it pegged grandfathering to the date of its release rather than the release of an order, meaning only combinations that were in existence or had applications in to the FCC by September 2013 would be allowed to keep counting their UHF stations as contributing half as much to the 39 percent ownership cap. Commissioner Ajit Pai and congressional Republicans heavily criticized the grandfathering. “Today’s NPRM effectively tells the private marketplace to behave as though the UHF discount has already been eliminated,” said Pai in a dissent. The commission has created a “regulatory purgatory for broadcasters,” said House Commerce Committee Chairman Fred Upton, R-Mich., and Communications Subcommittee Chairman Greg Walden, R-Ore (see 1309270045).
If grandfathering is pegged to September 2013, deals that were pending at the time, such as Tribune buying Local TV and Sinclair/Allbritton TV stations, would be grandfathered in, but the pending Nexstar/Media General wouldn't be, attorneys told us. Univision, Ion, Sinclair and Nexstar are seen as likely having cap difficulties under an eliminated UHF discount, a broadcast attorney told us.
The original NPRM also didn't allow grandfathering to continue if a broadcaster sells stations. A grandfathered ownership combination that's later sold or transferred would be required to “comply with the national ownership cap in existence at the time of the transfer,” Media Bureau Chief Bill Lake said in 2013. That's consistent with the bureau's stance on joint sales agreement grandfathering, and a clause that would greatly effect broadcaster planning, since it could require increased divestitures in order for broadcast deals to happen. Small groups of stations are generally not as profitable, successful or valuable as larger combinations, Flick said.
Both broadcast and public interest lawyers said the incentive auction will have an effect on the aftermath of the proposed rule, but with the auction in progress, it's not clear what. Analysts told us there will be plenty of UHF stations left after the auction, and it's not clear that stations exiting the industry by selling their spectrum will necessarily affect an ownership group's cap number. Before the auction, it was expected that many of the stations selling their spectrum would be part of market duopolies. If an ownership group has a station left in a market despite selling another in the same market, that ownership group still is reaching the same number of households, Wood said. With the effects of the auction unclear, the FCC should wait until the auction is complete before changing the UHF discount, a broadcast attorney told us. “They're just adding to the uncertainty for broadcasters,” Flick said.
Wood, Flick and several broadcast attorneys told us a court challenge of a rule removing the UHF discount is nearly inevitable. Broadcasters can argue that because Congress set the 39 percent ownership cap, the FCC doesn't have the authority to alter how ownership is calculated, Flick said. Since the FCC would be changing the rule without examining the ownership cap as a whole, it could be argued that eliminating the rule is arbitrary and capricious, he said.